The Family Estate Planning Law Group of Lynnfield, MA writes about Estate Planning, Wills & Trusts, Elder Law, Trust Administration, and more.

December 2017

12/29/2017

It’s hard to imagine during your 30s or 40s that retirement will actually arrive. Life is busy, with careers, raising families and saving for retirement, including investing in IRAs, 401(k)s and other savings vehicles. During those years, your estate plan is a necessary part of planning for retirement and protecting your family with documents that include a will, health care proxy and power of attorney.

As Marco Eagle’s article, “Money Talks: Estate planning tools” explains, the next phase is the retirement stage, when the focus shifts from accumulation to preservation and maintenance of the nest egg.

Growth is a component of any retirement plan, but protecting your purchasing power during retirement is critical. You also want to generate a predictable stream of income during retirement, in order to avoid compromising your lifestyle.

The final stage of successful retirement planning is often overlooked: that’s the estate planning phase or the strategy of a succession plan to pass assets to your family. There are many estate planning tools that can be used to execute an estate plan. You can create a revocable living trust. Under this arrangement, your assets are transferred into a trust during your lifetime and then transferred by the trust at death. It’s important from both a tax standpoint and an allocation standpoint, regarding who receives what and how much. This is what your estate plan does for you and your family.

Work with an experienced estate and trusts attorney to establish your estate plan, so you can achieve your final objectives when passing assets to the next generation. Some individuals like the ability to exercise control with an effective plan to pass assets to their beneficiaries, without the need for trusts or probate.

Avoiding probate is frequently part of a strategy to make the assets available, immediately after the death certificate is issued.

Many people incorporate life insurance as part of their estate plan in an effort to provide an asset for beneficiaries that is, for the most part, income tax free. While it’s always good to avoid taxable events upon death for your heirs, this is one of many tools to be incorporated into your estate plan. An estate planning attorney will be able to provide you with guidance that is best suited for your family.

12/27/2017

As the government shifts retirement ages higher and employees are working later in life, the health of Americans is changing, and not for the better. According to a recent article in Think Advisor, “Americans Are Retiring Later, Dying Sooner and Sicker in Between,” millions of Americans will likely have shorter and far less active retirements than their parent’s generation.

The U.S. age-adjusted mortality rate, which is a measure of the number of deaths annually, increased 1.2% from 2014 to 2015, according to the Society of Actuaries. It’s the first year-over-year increase since 2005, and only the second rise greater than 1% since 1980.

Meanwhile, Americans’ life expectancy is stagnant, with millions of U.S. workers waiting longer to retire. The age when people can claim their full Social Security benefits is sliding up, from 65 for those retiring in 2002 to 67 in 2027. Nearly 33% of Americans age 65 to 69 are still working, along with almost 20% in their early 70s.

Postponing retirement can make financial sense: extended careers can make it possible to pay for retirements that last beyond age 90 or even 100. However, a recent study cautions about this calculation, because Americans in their late 50s already have more serious health problems than people at the same ages did 10 to 15 years ago.

Death rates can vary from year to year, but research is showing that the health of Americans is deteriorating. Researchers say that an epidemic of suicide, drug overdoses, and alcohol abuse have contributed to a spike in death rates among middle-age whites. Higher rates of obesity may also be a cause.

However, the declining health and life expectancy are good news for one group—pension plans. These plans must send a monthly check to retirees for as long as they live.

According to the latest figures from the Society of Actuaries, life expectancy for pension participants has gone down since its last calculation by 0.2 years. Today’s 65 year old American man can now expect to live to 85.6, and a woman can expect to live to 87.6.

For pension plans, the change in life expectancy could mean a 0.7% to 1% change in the plan’s obligations. That’s a significant difference.

Estate planning is important not just with regard to death, but also in the event of disability or a sudden decline in health. For more information, explore our website and contact us to schedule your consultation today!

12/22/2017

Giving your children, or other heirs, gifts while you are still alive can be a very fulfilling experience: you get to see what they do with their early inheritance. However, many people aren’t sure about the tax implications of gifting. A recent article posted on nj.com, “Gift tax consequences for you and your heirs,” gives readers a general look at gifting and taxes. It should be noted that large estates often incorporate gifting as part of an overall estate plan and should have the guidance of an experienced estate planning attorney.

The IRS considers a gift to be any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) isn’t received in return. However, there are exceptions to this rule. Generally, the following gifts are not taxable:

Gifts that aren’t more than the annual exclusion for the calendar year;

Tuition or medical expenses you pay for someone (the educational and medical exclusions);

Gifts to your spouse;

Gifts to a political organization for its use; and

Gifts to qualifying charities are deductible from the value of the gift(s) made.

The federal estate and gift tax exemption is $5.49 million per person this year, which means that a person can leave and/or gift a total of $5.49 million to their heirs without paying federal estate or gift tax. The cutoff will typically increase with inflation each year. Accordingly, the amount will be $5.6 million beginning on January 1, 2018.

Making a gift or leaving your estate to your heirs doesn’t impact your federal income tax. You can’t deduct the value of gifts you make, except for gifts that are deductible charitable contributions.

You must then consider your state taxes. Take, for example, New Jersey. The Garden State has an estate exemption of $2 million in 2017. The state’s estate tax is planned to be repealed entirely in 2018, and New Jersey doesn’t impose a gift tax.

There is a federal annual gift tax exclusion amount that doesn't count toward the lifetime gift exemption. That annual gift tax exclusion amount is $14,000, and has been so since 2013. As a result, a person can give away $14,000 to as many people as he or she would like without a tax issue. Note: That amount is increasing to $15,000 beginning on January 1, 2018.

There’s no gift tax return to be filed, if the annual gifts total $14,000 or less to each individual donee.

Every family’s situation is different, so it’s a good idea to speak with an experienced estate planning attorney to make sure that you are making the most out of gifting, both in terms of tax and experiencing the joy of generosity.

12/20/2017

First, let’s define the RMD (Required Minimum Distributions). This is the least amount of money that someone who owns a retirement plan is required to withdraw every year, starting the year that the individual turns 70½, or, if they retire later, the year when they retire.

However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs have to start once the account holder is age 70 ½—even if she’s not retired. The rules of what can and cannot be done with retirement plans are very strict, so you may need help from a professional.

What about when a plan owner dies? What are the rules for distributions to their beneficiaries? There are different RMD rules that apply. The entire amount of the owner’s benefit usually must be distributed to the beneficiary who is an individual either:

Within five years of the owner’s death; or

Over the life of the beneficiary, starting no later than one year following the owner’s death.

Roth IRAs don’t require withdrawals, until after the owner’s death. The tax-free transfer of an RMD to charity only applies to IRAs. However, there’s a way to give money from your 401(k) to charity tax-free: you need to roll over money from your 401(k) to an IRA and then donate it to the charity.

To do this, you’d have to take your RMD from the 401(k) for this year before you can do the rollover. You can then roll over 401(k) dollars to the IRA for future charitable transfers. If you do this by the end of the year, you'll be able to begin moving some of the money to charity in 2018, which may fulfill some or all of the RMD from your IRA.

If you are 70½ and older and charitably inclined, you are permitted to donate up to $100,000 of your IRA to a charity. There are some real benefits to doing this. First, the contribution counts towards your RMD, but it’s not included in your adjusted gross income. That might make you eligible for tax breaks that are tied to your AGI, and, depending on your situation, could reduce or even eliminate tax on your Social Security benefits. Check with your accountant or an experienced estate planning attorney to make sure that this aligns with your estate and tax plan.

12/18/2017

One of the biggest mistakes made by entrepreneurs is failing to create a written plan for their long-term exit strategy. What they don’t understand is that by creating a succession plan, which includes ways to boost the value of the business years before you want to sell or retire, they’ll have a created a road map for a more successful business.

Springfield (MO) Business Journal’s recent article, “Starting a business? Plan your exit now,” advises that you begin with creating a culture of success with your employees, especially the key people. That means fostering an ownership mentality, so they see their critical role in the company’s long-term success and their role in helping that to continue in the future, long and short term.

One of the first steps is to identify who will take over, whether that’s a partner, family member, employee or a purchaser from the outside. For death-of-owner planning, you should draft a buy-sell agreement with an experienced attorney. A buy-sell agreement will include a purchase price formula. That formula needs to be revisited as conditions change.

The next step is to decide how the buy-sell agreement will be funded. A common option is life insurance. In a “cross-purchase” buy-sell agreement, the business owner is the insured, and the successor-owner is the beneficiary. This policy can provide necessary and immediate cash for the successor-owner to purchase the business from a surviving spouse.

If you want an employee or family member to take control at your retirement or death, start with their training and/or experience now in order to get them adequately prepared. You may also consider “stay-put” agreements to keep key managers and employees around to help with the transition to new ownership. You may want to consider a “stay bonus”, in addition to regular pay as an incentive.

Every “death-of-owner” planning scenario also applies to exit plans from the sale of the business. Here are five other contingency planning items:

Disability, illness or injury of the owner. With disability/income replacement insurance for the owner, think about business overhead expense insurance. That insurance helps make sure the bills are paid and the doors stay open while you’re out.

Death or disability of a key employee. Consider the expense of replacing a top manager or salesperson temporarily or permanently. What revenue would potentially be lost during the transition? Look into key-person life insurance and/or key-person disability insurance.

Resignation of a key employee. With an executive bonus plan, a “golden handcuff” can help. One way is to contribute to a cash-value life insurance policy on behalf of the employee. The life insurance component gives the employee’s family important financial protection if she dies, and the cash value can supplement retirement savings one day, if she does not die. This will let the employee see how much she means to the business. Vesting terms in a written agreement will also make the program even stronger, because if she departs before the vesting period is complete, she’ll lose some or all the benefits.

Commercial property and casualty insurance. These policies can include business continuation provisions to cover expenses and payroll during any downtime after a catastrophe.

Estate planning. Review your estate plan with your estate planning attorney, with a dual focus: your business and your family’s best interests. Your plan must address estate tax and gift tax issues. It should include your trust, will, powers of attorney and other estate planning documents.

Avoid the hazards that occur for so many business owners because they fail to plan for the future. Doing so early on, will allow your business to flourish long after you have moved on.

12/15/2017

Some parts of the tax code may change, if the Trump administration gets its wish to eliminate the estate and gift transfer taxes. However, as reported by The Paradise (CA) Post in a recent article, “Some death tax advice,” even if those goals are accomplished, most people still have to address common estate planning issues.

Although saving estate taxes has been a major motivator for creating a revocable living trust, with federal taxes rarely an issue, state estate taxes may still apply.

Strategies utilized through the use of a trust may still be needed to limit the impact of state estate taxes. If you value privacy for yourself and your heirs, you should also consider a trust. A simple will or no will makes your life a public affair.

Think about who will inherit. You may need to address an inheritance for young beneficiaries, those with special needs and those vulnerable to other risks (such as addiction or financial improprieties).

Next, look at the way in which your assets are titled and your beneficiary designations. Don’t assume that assets will pass as desired. Documents can be drafted, but the actually re-titling of assets may not happen and your beneficiaries may need to be updated. Note that one of the most important, but frequently overlooked, steps in the estate planning process is the alignment of assets consistent with your estate planning objectives.

Succession planning is often the weakest link in a business owner’s estate plan. Without a succession plan in place, a family may find itself facing expensive and complex legal and financial challenges. A good succession plan can take many years to create and refine, regardless of the estate tax law.

Sit down with an experienced estate planning attorney who can help you address these challenges and plan for the future.

12/13/2017

Many people with disability income owe student loans. Although deferring repayment or working out a repayment plan based on the individual’s income are possible options, there’s also a process for discharging student loans completely – and it’s cost-free. It’s called a total and permanent disability (TPD) discharge. This U.S. Department of Education website explains the process: https://www.disabilitydischarge.com/Application-Process

Here’s a summary of how to obtain a TPD discharge, courtesy of HELPS, a non-profit law firm formed to educate seniors and those with disabilities about their financial rights and to resolve tax, student loan and housing issues:

Get a copy of your Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within 5 to 7 years from the date of your most recent SSA disability determination. If your SSA notice of award does not indicate when your next scheduled disability review will occur, you can obtain this information by calling your local SSA office or by calling (800) 772-1213 and requesting a Benefits Planning Query. The Benefits Planning Query will show when your next review is scheduled to occur.

Complete the application for discharge either online at the Department of Education website above or print out a copy. If you need help in certain situations, HELPS can act as your representative to fill out the application.

Print the completed application or if filled out by hand, mail to:

U.S. Department of Education

P.O. Box 87130

Lincoln, NE 68501-7130

The Department of Education will then contact the holders of your federal student loans and instruct them to suspend collection activity on your loans while the federal agency determines your eligibility for discharge. This means that you will not be required to make payments on your loans while your discharge application is evaluated.

The Department of Education will review the application that you submit along with any supporting documentation to ensure that the application is complete and that it includes information that indicates you may qualify for a discharge.

The application will then be reviewed for a final decision.

There is also a process for veterans with a service-connected disability and for getting disability certification from a physician, as explained on the website above.

12/11/2017

If you are lucky enough to have your parents still living, that’s wonderful. But as they age, and particularly if one passes and the other is on their own, be watchful of their ability to perform the tasks of daily living. If they refuse any help, you need to start talking about safety and making a plan for their care.

nj.com’s recent article, “When your older parent refuses help,” says that as parents live longer, a tension can develop between the kids who want to be sure that mom and dad are safe, and the parents who want their independence.

For many, the only thing they want help with is remaining independent as long as possible. You can start your conversation there. Maybe there's a relative, neighbor, or friend who’s living alone but can't go home after surgery, because there’s no one to nurse him back to health or someone you know has an injury after a fall. You want to make sure this doesn't happen to you.

Create a plan that addresses who will provide the help and how you will to pay for it. First, while your parent's mind is clear, get a durable power of attorney which allows the parent to select who will help him with financial decisions, if such assistance is needed either temporarily or permanently. Since powers of attorney are sometimes not accepted by certain banks and financial institutions, a better approach is to create a revocable living trust and transfer title into the name of the living trust. Ask an estate planning attorney to draw up a trust, power of attorney and health care proxy. Note that the power of attorney only applies to finances. However, the healthcare proxy appoints a person who can talk to your doctors and gain access to your medical information.

Next, see what professionals in your area could be resources for you. Find a geriatrician in your area. That is a physician who focuses his or her practice solely on seniors. You should also look for a geriatric care manager who knows the resources in your area, and can help you make a plan—whether to bring a parent home from the hospital or to place him or her in a residential care setting.

You should also find a qualified estate and elder law attorney. He or she is trained to identify the elder law issues in routine transactions, like real estate transfers or gifting. In many instances, they collaborate with an informal network of geriatricians, retirement planners and geriatric care providers.

Depending on the relationship you have with your parents, they may welcome having this thoughtful conversation. It is best is to put a plan into place, before you find yourselves in an emergency situation.

As the holidays approach, you may be spending more time than usual with your parents and this may present a good opportunity to begin the conversation.

To learn more about how we may be able to help your family with this type of planning, explore our website and contact us to schedule your consultation today!

12/08/2017

It’s that time of year where many of our clients fly south for the winter. If you live in more than one state, an experienced estate planning attorney can help you determine which state will be best for you to claim residency for estate planning purposes, and what that state’s residency requirements are.

The federal exemption, the amount you can give away without incurring federal estate taxes, is $5,490,000 for 2017. That can be a pretty high mark, so most individuals dying between now and December only have to worry about state estate taxes.

Ask an estate planning attorney about the estate tax laws of the state where you’re considering moving. There are 14 states, plus the District of Columbia, that currently have an estate tax upon death, and six states that have an inheritance tax.

For example, Massachusetts is one of the 14. Its state exemption is now $1 million. That means if your estate is larger than $1 million, you could owe Massachusetts estate taxes. On the other hand, Florida, which is always seeking to attract more residents from the north, has neither an estate tax nor an inheritance tax.

New Hampshire is the only state in New England without an estate tax.

It’s not uncommon for a person to own property and pay real estate taxes in both states, to have a bank account in both states and to purchase insurance in both states. Nevertheless, you can only live in one state. You’re just visiting the other state. Six months and one day determines where you live and where you vote.

If you own property in different states, it may mean that your heirs will need to go through the probate process upon your death in more than one state. Consider creating a trust and having the trust own the real estate to make the transfer of property less troublesome at your death.

It is advisable for those who live in more than one state to execute a Durable Power of Attorney in each state. If you unexpectedly need to have legal or financial decisions made by someone else, you’ll have that state’s proper documents in hand. This is especially important, if you have bank accounts and own property in each state that are not owned by trust. Work with a qualified estate planning attorney to prepare these documents now, and make sure that family members know where the documents are located.

12/06/2017

Once you hit the mark at 70 ½, it’s time to start taking the RMDs from retirement accounts. This can send you into a higher income level. One way to manage this: make a tax-free transfer from an IRA to charity and have that count as the RMD. We know what your first question is going to be: why don’t I just take the money out and make a charitable donation? There’s more to it than you might think.

The transfer is deemed to be a qualified charitable distribution, which keeps your required minimum distribution outside of your adjusted gross income. This can help you remain under the income cut-off for some other taxes and charges. In addition, for those who don't itemize their deductions, making the tax-free transfer can benefit from their charitable gift.

If you are required to take large RMDs from your retirement savings, you could be lifted into a higher premium level for Medicare. However, making a tax-free transfer of that RMD to charity keeps that sum out of the Medicare premiums calculation. If your AGI plus tax-exempt interest income is more than $85,000 for singles or $170,000 if married filing jointly, you'll have to pay higher Medicare Part B premiums. That could be a substantial difference: the monthly premiums of about $109 per month for most people who have their premiums deducted from their Social Security payments or $134 for new Medicare enrollees. Those subject to the high-income surcharge must pay from $187 to $428 per month for Medicare Part B in 2017, depending on their income—plus an extra $13 to $76 added to their premiums for their Part D prescription-drug coverage.

A lower AGI can also help you lower taxes on your Social Security benefits. You need to look at your provisional income, which is your adjusted gross income, not counting Social Security benefits, plus nontaxable interest and half of your Social Security benefits. If your "provisional income" is less than $25,000 and you file taxes as single or head of household—or less than $32,000 if you file a joint return—you won't owe taxes on your Social Security.

If you’re single and your provisional income is between $25,000 and $34,000—or between $32,000 and $44,000 if married filing jointly—up to 50% of your benefits may be taxable. If it’s more than $34,000 if single or more than $44,000 if married filing jointly, 85% of your Social Security benefits could be taxable. Keeping your RMD out of your AGI can help reduce your provisional income.

Here’s a key point to keep in mind: if you are over 70 ½, you are permitted to transfer as much as $100,000 tax free from your IRA to a non-profit. But—and this is very important—the funds must be transferred directly from your IRA to the non-profit, if they are to stay out of your AGI.

As with all planning of this type, please be sure to consult with your accountant and estate planning attorney as there are rules that must be specifically followed in order to obtain these tax benefits.

For more information on how this could affect your retirement and estate planning, explore our website and contact us to schedule your consultation today!